Econometric Theory/F-Test

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An F-test involves the computation of an F-statistic, which is then compared to the critical values of an F-distribution for a given significance and numerator and denominator degrees-of-freedom.

An F-statistic is calculated by dividing a chi-squared distribution divided by its degrees-of-freedom by another (independent) chi-squared distribution by its degrees-of-freedom. The resulting F-statistic has two degrees-of-freedom parameters, one each for the numerator and the denominator.

Therefore, the F-statistic for would be:

  • Numerator:

We know (somehow) that , therefore we set the numerator equal to:

  • Denominator:

From the same implication of the last assumption of the CLRM as used by the t-test explanation,

Therefore, putting it all together gives us: